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US Federal Reserve ups interest rates by 75 basis points

  • By Al Mayadeen English
  • Source: Agencies
  • 22 Sep 2022 11:33
  • 1 Shares
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This would be the fifth increase this year.

  • US Federal Reserve ups interest rates by 75 basis points
    Fed Chair Jerome Powell declared a higher anticipated annual inflation rate for the year

The US Federal Reserve’s Federal Open Market Committee (FOMC) announced on Wednesday it was raising the federal funds rate by 75 base points to between 3% and 3.25%, which would be the third increase in a row after the central bank decided in April to increase rates to attempt and keep inflation under control.

On Wednesday, Fed chair Jerome Powell said it would sometime become appropriate to slow the rate of interest rate increases; the median forecast showed the bank expects to increase interest rates to at least 4.4% by the end of 2022. However, it could continue to rise, hitting 5% in 2023.

Powell showed confidence that the central bank was heading to a point where it will be sufficiently restrictive to take inflation back to 2%. However, he also declared a higher anticipated annual inflation rate for the year: 5.4%, up from the previous estimate of 5.2%.

Still, the Bureau of Labor Statistics' recent monthly Consumer Price Index (CPI) report has shown high inflation and August's commodity prices to be 8.3% higher than a year before. The Fed’s measures have had little effect on inflation, as per the report, which remains at a 40-year high point, and a more substantial rate hike expectation by the central bank has kept Wall Street stocks down for weeks.

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Despite the fact that higher interest rates are supposed to limit intra-bank loans and thus create new money, the Economic Policy Institute found in an April study that corporate profits accounted in the last two years for 54% of inflation in the US. This means that the problem is price speculation, not overeager lenders.

Warnings have also been issued by economists about more rate hikes leading to slowing the economy and possibly generating a deeper recession and an unemployment increase, although the US has been in a recession since July, according to Commerce Department statistics.

The Summary of Economic Projections from the Fed showed unemployment rate is forecast to rise next year to 4.4% from 3.7%, and the growth in the US gross domestic product (GDP) is expected to be just 0.2% for the present year.

It is worth noting that the economic situation which is affecting the financial standpoints of American families and businesses is burdening US President Joe Biden's popularity, which will affect his chances of winning the midterm congressional elections which will take place in early November.

Fed leaders believe that their job is not just to slow demand in the economy, but also to strengthen the public’s trust in the central bank because if people lose trust in the government’s capacity to keep inflation under control, the Feds will not be able to impose further increases in case the crisis develops unexpectedly.

  • Federal reserve
  • US inflation
  • Consumer Price Index
  • United States

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